My recent medium-term update on the NZDUSD has evoked some interesting discussion (see comments section for that post). This is a follow-up post, and should serve to answer some of those questions. First of all, I would like readers to understand that my approach to the financial markets differs from many of the other practicioners of Elliott Wave analysis in one significant way. I use the Elliott Wave principle to help me with my trades (or those of my clients). The goal is not to be accurate about the labels, or even the extent of a potential move. The value offered by my approach is it tends to get the direction right on most of the calls, and the entry levels suggested (when I recommend a level) often makes for a low-risk trade. This approach allows me the flexibility to change my counts as the market unfolds, and we all know that the markets are under no complusion to follow what we wish it to do! It will do what it pleases, and when it deviates from the anticipated path, we will make adjustments at our end!

The recent call for NZDUSD to go towards 0.6800 is like looking at a map of the world and saying if you wish to go to Antartica, you should head South. Promptly after I wrote that piece, the NZD headed North, and reached a high of 0.8016. But no harm was done, because that post was not a trading recommendation. But looking at the shorter term (hourly charts) this morning, I am able to see the completion of an extended fifth wave from the low of 0.7451. I wish I had seen this last Thursday, because it would have been fairly easy to spot the end of the fifth wave.This is shown in the attached chart, and it follows one of the techniques I have described in detail in my book “Five Waves to Financial Freedom”

Yet, it is not too late because the downside targets for the correction that follows the completition of the extended fifth wave is not only predictable, but in the case of the NZDUSD still lies some distance away. I am inclined to think that we are in the process of completing the first leg of a complex correction down from 0.7990. If that plays out well, we will get a recovery as an X wave to the mid 0.79s. There exists a slight chance that we revisit the prior top (0.8010/15 area!). Irrespective of which way the next move unfolds, we will get a swift sell off later on to around 0.7715. Now that is valuable information. If you get lucky to see the Kiwi around 0.8000 levels, you should take the trade with an affordable stop. (note, this will work even if we get a slight throw over above 0.8016). But as of now, I think the odds favor the development of a corrective X wave to 0.7930/50 followed by a steep decline to 0.7715.
Good luck.

The chart for New Zealand Dollar offers some interesting patterns from an Elliott Wave perspective. (Many readers would remember that it has been possible to anticipate some significant moves in the Kiwi using Elliott Wave Analysis).

The attached chart shows that we could be unfolding in a double zigzag, with a long-term target of around 0.6800 or lower. For the immediate future, however, we should be quite happy with a 4.5% downmove to just below 0.7400. after that, we will look for a recovery of between 38.2% and 50% of the 5-wave decline that finished below 0.74. Once this correction is done, lookout for a sharp sell off towards 0.6800.

Elliott Wave Analysis of NZD/USD

As usual, you will find several more Elliott Wave notations on the chart itself. Observe the Fibonacci relationships and the underlying rhythm of the market. You too can learn these techniques. It just requires a little bit of effort to find the time to try it yoruself. Good luck. Ramki

Considering my Elliott Wave update for New Zealand Dollar posted on 4 December 2011 was quite long, I will keep this very brief. Thank you Paul, and RKG for keeping a watchful eye on the Kiwi. For those who wish to learn something from this post, I suggest a revisit to the old post and read it carefully. You will see how one could have anticipated a move of over 8%. Of course, trading that move would have required fine-tuning the entry levels carefully, but knowing before hand where the Kiwi was headed would be a tremendous advantage, especially for the corporate treasurer who has to hedge his currency exposures. Feel free to share this with your freinds, and get them to join our club.Cheers.

Those of who who read my book “Five Waves to Financial Freedom” would have seen that I used the New Zealand Dollar in quite a few examples. ( I have no special love for any currency, by the way. It just happened that when I wrote the book during August 2011, this currency showed many nice Elliott Wave patterns).

In a subsequent Elliott Wave update of the New Zealand Dollar, posted on October 23, 2011, I continued to be bearish. I suggested that there was a low risk possibility for the move to finish its then current recovery around 0.8150 before a nice sell off. The actual high happened only a 100 pips higher, but one could have easily adjusted his count as we appraoched the 0.8150 to figure out where the move will finish. The NZDUSD fell to a new low of 0.7367!

You have to bear in mind that Elliott Wave analysis is always a work-in-progress. Our goal is to stay one step ahead of the markets, but not to be deterministic about the future. Accordingly, when one of the WaveTimes Club members posted a request to revist the moves in NZD, I decided that all of you readers could benefit by this update you see today. I am trying to present you with a broad road map of what I currently think could happen. It is very forward looking, and is thus vulnerable to being completely wrong. However, this is how I operate. I consider the big picture and ask myself what my instincts tell me. This inner voice uses what I have learned over the years, and pays particular attention to wave personalities. (There is a good portion of my book devoted to this subject). Accordingly, the most recent rally in the New Zealand Dollar has a unique personality that suggests we could go back to 0.8300 levels next year. However, there is some more work to be done before that move will happen. I think we will likely get a dip back to around 0.7600 if we fail around 0.7900. The bigger rally in the NZD will come only later.

You now have before you Elliott Wave comments on the New Zealand Dollar done on 4 December 2011. Key levels and minor waves have been marked clearly for your understanding. Please bear in mind that I am not recommending you a trade here. Trading requires you to fine tune the entry levels as the market approaches the levels you identify in the big picture. However, with the knowledge you have gained by reading this blog and its innumerable examples, you should be in a position to use Elliott Waves the way it is meant to be. If you have learned that, then I would be quite happy because my main goal for writing all these years is to share what little I know of this fine art, and to give you the tools to handle your trading and investment decisions in a more disciplined way. One doesn’t become poorer by sharing his knowledge! Go ahead and pass this on to all your friends. As my friend Bob often says, “Good Fortune”!

Elliott Wave Analysis can become addictive to many a trader who discovers its potential. The harmony between the several waves in a pattern can be seen in almost every chart presented in Wave Times. In my book “Five Waves to Financial Freedom” I have used the Elliott Wave Analysis of New Zealand Dollar or NZDUSD to illustrate some of the key concepts of the Wave Principle. About two weeks ago, I sent out a special update to those who had purchased the book giving the wave counts for the moves that unfolded after the publication of the book. The currency had travelled an astonishing 10 big figures from the top, and it was possible for a trader to anticipate that move by applying the power of Elliott Wave Analysis to refine his trading strategy.
The key to success in the markets, and in using the Wave theory to trading lies not so much in whether you have got the minor wave count correct, rather it is whether you are riding the bigger move in the correct direction. This concept has been exemplified in my book in greater detail. Take the New Zealand Dollar as an example. Those who received the special update saw my logic for placing the end of Wave 1 at a particular point. However, I have today moved the end point for wave 1 to a higher location. In the bigger picture, it makes little difference to the overall outlook that the NZDUSD will come off again. However, by moving the end point of wave 1 a tad higher, I am giving myself the flexibility to allow the current wave C some more room to the upside, and still calling it part of wave 4 because it won’t overlap the bottom of the wave 1 that has been adjusted upwards.
Some may call this manipulation of the wave counts to suit my end. But the philosophy that Wave Times has adopted all along (and which I hope the readers of this blog will come to appreciate) is we don’t wish to be a purist and a pauper. We wish to profit from Elliott Wave theory by applying it the way it was originally meant to be. I can vouch safe that there is not a single person alive who can claim to be able to count the waves accurately before a big move is finished. What one can attempt is to figure out the best possible level for a low-risk trade, and enter the market near there. Success in trading goes beyond this first step, because we have to use proper money management techniques to preserve our capital. In today’s post, I have shown you one such sweet point. That level is a 50% retracement of the whole down move, and is not too far from the potential end point for the C wave up. Additionally, it is also a 61.8% retracement level for the ‘C’ wave (from 0.8571 down to 0.7466). Whether this recovery is a fourth wave or not really does not matter to the trader. (It might matter to an analyst who is trying to make his mark among his readers, but to the reader himself/herself what matters is the end result). For example, we could have finished an ABC wave down to the 0.7466 level, and what we are seeing is an X wave, but the key point is we remain bearish. This bearish stance is what matters to the trader.
I hope that this unusually long treatise on Elliott wave analysis (Ramki style!) resonates well with you. If you have received the special update earlier, keep a print out of that along with this post and it will enhance your learning.
With best wishes, Ramki